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Yes, We Have Too Many Bananas (Int'l Edition)

January 29, 1995

Business Week International International Business: WORLD TRADE

YES, WE HAVE TOO MANY BANANAS (int'l edition)

It's a trade war American banana-eaters might like to lose. The U.S. and Europe are squaring off over European Union restrictions on banana imports. With new limits on Latin American bananas sold in Europe, U.S. distributors have had to increase shipments to the U.S. The result: shrinking market share across the Atlantic and falling prices at home. Now, Washington is threatening to retaliate if the Europeans don't change their rules.

At the center of the fight for the $1 billion-plus European banana market is Chiquita Brands International Inc. As the leading supplier of Latin American bananas to Europe, the Cincinnati-based distributor and marketer of fresh produce is the hardest hit by Europe's banana policy. With its European sales plummeting, Chiquita is calling on the U.S. Trade Representative to help reopen the European market. In mid-January, USTR Mickey Kantor started making a list of potential targets for retaliation if a settlement isn't reached by Feb. 10. He is to meet with European Union Trade Commissioner Sir Leon Brittan in Washington in late January.

HALF EMPTY. Chiquita's problems started after Europe became a single market in 1992. France, Britain, Spain, and other countries that traditionally get bananas from overseas territories and former colonies in Africa and the Caribbean feared an influx of cheaper, tastier Latin American varieties. In July, 1993, they persuaded Brussels to slap tariffs and quotas on "dollar bananas"--those imported from Latin America by U.S. companies. Says Joseph W. Hagin II, a Chiquita vice-president: "We are concerned about a government entity attempting to micro- manage a complex global trade system."

Operating under the EU rules, Chiquita has seen its banana shipments to Europe drop to 260,000 tons last year, down from 851,000 in 1992. Because of the quotas, it's sending some ships to Europe half empty. The company claims to have lost $400 million as a result of the restrictions.

What's more, Chiquita and other exporters such as Dole Food Co. have diverted excess supplies to the U.S. While lucky U.S. consumers now pay 16% less for bananas than in 1991, the exporters' profit margins have collapsed.

U.S. companies aren't the only ones complaining. Five Latin American growers--Nicaragua, Costa Rica, Guatemala, Colombia, and Venezuela--protested under the General Agreement on Tariffs & Trade. Last February, GATT found that the EU's banana import policies contravened GATT rules and should be eliminated. Although the EU refused to accept the findings, it did offer to settle with the five countries. Last spring, all except Guatemala signed a complex licensing agreement raising their quotas slightly and bringing in new revenue.

But that drove a wedge in the long-standing relationship between the Latin American growers and U.S. distributors. The distributors see the new quotas and licenses as discriminating against them. That was the last straw for Chiquita, which filed its complaint with the USTR in September. "The discriminatory practices of the European Union have already cost U.S. banana marketing and distribution firms hundreds of millions of dollars at a minimum," said Kantor in his preliminary finding.

European consumers are also getting hurt in the banana battle. With supply restricted by a prohibitive tariff, which could be as high as $1,034 per ton, prices have doubled in Denmark, Belgium, and elsewhere. Germans, Europe's top banana eaters at an average 16 kilograms per person each year, are paying 30% to 50% more than a year-and-a-half ago. Even so, many consumers still prefer the Latin imports. At a Brussels grocery store recently, consumers were passing up spotty Ivory Coast imports at $1.76 per kilo for $2.53-a-kilo Latin bananas.

Chiquita has allies. Germany is suing the EU in the European Court of Justice to abolish the license system. "We need some protection for Community bananas, but the current system is unjust and discriminatory," says an official at Germany's Economics Ministry. A ruling is expected within weeks. Germany has also pressed Brussels to change its policy. Now that Austria, Sweden, and Finland--all Latin-banana-loving countries--have joined the EU, there may be enough votes to amend the rules.

France, among others, is likely to put up a good fight. But Chiquita and Kantor think the time is ripe to drop Europe's banana barriers. If they succeed, U.S. consumers might want to get their fill of bananas before the price goes up.By Linda Bernier in Brussels